Retirement: Have you planned for it even though you’re far from reaching retirement age? I know all of us feel a little apprehensive since retirement usually means higher health care costs and reduced income. Actually, if you haven’t planned well, poor health can be devastating. Did you know there’s a way to combine health insurance and saving for retirement?

Health Savings Accounts were created by the IRS as tax-advantaged accounts that need to be paired with a qualified high-deductible health plan. Individuals must have a plan with a deductible of at least $1,200, and families need one of at least $2,400 to start an HSA, but only certain of these plans allow you to open a Health Savings Account. These accounts can make it easier to save in three ways.

Once you have an HSA, it allows you to take tax deductions for your HSA contributions to reduce your taxes. While in the account, earnings on those funds are not taxed. And, if you withdraw money to spend on qualified health care, it’s never taxed. A 20-percent tax-penalty is applied if you use the funds for non-qualified purposes before you reach 65. After that, you can use the funds for any purpose and you’ll pay income tax, but there won’t be any penalty. This can really help you with health care costs because you can withdraw money to pay for that at any age. That’s really different from having an Individual Retirement Account (IRA) because you can’t use those funds until you’re 59 ½. And, since high-deductible plans tend to have low premiums, you can use the money you save on premiums to fund your HSA.

If you don’t need your HSA funds for health care, you can let the balance grow tax-free and build it for your retirement. Just like an IRA, an HSA balance rolls over year after year. The money can stay in your HSA even after you retire, and you can keep it invested or make withdrawals to spend it however you like. With an IRA, you are required to start withdrawing the funds once you reach 65.

The maximum HSA contribution for individuals is $3,100 in 2012, and it’s $6,250 for family plans. You can make a catch-up contribution of an extra $1,000 if you’re at least 55. You won’t be allowed to make contributions after age 65, though. You can find extensive resources here on our site to help you make the most out of your HSA.